Considering a Layaway Purchase? Read This “With so many Americans still struggling financially and reeling under credit-card debt, layaway is likely to be an even more attractive alternative to pay for gifts this holiday season. If you’re unfamiliar with the layaway process, here’s how it works.” [Consumer Reports Money]

Say you put a $100 item on layaway for 90 days and pay a $10 service charge, or 10% of the cost. This is the equivalent of paying 40% interest on the item. Instead, you use a credit card at 20% interst to pay for the $100 item and pay it off in 90 days. Total interest charges = $5. The break even point is $200. It’s more if your interest rate is less.

Moral: unless it’s something that’s really expensive or you can’t trust yourself to pay off the balance on your credit card, it’s a better deal to pay with plastic.

From the article: If you’re unfamiliar with the layaway process, here’s how it works: You enter into a contract and make an initial deposit based on a percentage of the purchase price, along with a service fee to administer the plan and keep the item in storage.

@pecan 3.14159265: I guess I can see people using it for that. I’m crazy enough to not buy stuff if I don’t have the money, though. ;) I guess if it’s really only a $5-$10 fee, it wouldn’t be crazy to use it for a large item, anyway… Cheaper than charging it if you’re going to pay interest.

@catastrophegirl: I would imagine they’d have a problem with people putting computers on layaway, getting it out 3 months later, returning it and getting a newer, cheaper model, leaving them with the out-of-date stock. Technology changes too fast I guess.

@Kamidari: I’m like you, I tend not to buy things when I don’t have cash in hand. Therefore I really can do without credit cards and there are few occasions where they would make things easier for me. Layaway, however, is a godsend.

I wear a hard-to-fit style and size, for example, and it’s one that tends to sell out quickly. If I can shop while things are available (which is far into the season before they’ll be needed), and lay them by while I make payments on them, I am assured of having clothes that fit when the time comes to wear them.

Layaway also helps me control my spending. If I had a credit card, I might be more susceptible to the “I have to have it right now” demon. Layaway gives me an incentive to ask myself whether I really need something and whether it’s worth waiting for.